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Recon Technology Reports Fiscal 2018 First Quarter and First Three Months Financial Results

Total Revenues For The First Quarter Of FY2018 Increased By 56%

Rochester, NY -- (ReleaseWire) -- 11/15/2017 --Recon Technology (NASDAQ:RCON) Reports Fiscal 2018 First Quarter and First Three Months Financial Results. Total revenues for the first quarter of FY2018 increased by 56%.

BEIJING, Nov. 15, 2017 Recon Technology, Ltd. (NASDAQ:RCON), ("Recon" or the "Company"), a China-based independent solutions integrator in the oilfield service, electric power and coal chemical industries, today reported its financial results for the first quarter and first three months of fiscal year 2018, which ended September 30, 2017.

First Quarter FY2018 Financial Highlights (all comparable to the prior year period):

Total revenues for the first quarter of FY2018 increased by 56% to RMB 12.2 million ($1.8 million);

Gross profit for the first quarter of FY2018 was RMB 2.1 million ($0.3 million);

Gross profit margin increased to 17.2%, largely due to continued higher margin generated from automation business;

Net loss attributable to Recon for the first quarter of FY2018 was RMB 6.7 million ($1.0 million), or RMB 0.97 ($0.15) per basic and diluted share, compared to net loss attributable to Recon of RMB 5.5 million, or RMB 0.92 per basic and diluted share, for the same period of last fiscal year;

Non-GAAP net loss attributable to common shareholders excluding certain non-cash expenses was RMB 2.3 million ($341,093), or RMB 0.33 ($0.05) per basic and diluted share, for the first quarter of FY2018, compared to non-GAAP net loss attributable to common shareholders of RMB 3.2 million, or RMB 0.54 per basic and diluted share, for the same period last fiscal year.

Management Commentary:

Mr. Shenping Yin, Chairman and CEO of Recon stated, "Revenue of this quarter is mainly driven by equipment and integration of automation business, the basic two legs of Recon, as we stated in our open letter to shareholders (Refer to the following link for more details: http://recon.mediaroom.com/2017-06-12-Recon-Outlines-2017-Strategy-and-China-Oil-and-Gas-Market-Outlook-in-Open-Letter-to-Shareholders?pagetemplate=widgetpopup). As most of our projects of waste water treatments are currently in progress, we expect revenue of this business line will contribute significantly to the overall revenues in the coming quarters. The rally in crude prices helped generate positive sentiment and we did see more investments in oil extraction by our clients and thus more opportunities for Recon. Based on our current estimation, we remain confident in our ability to achieve our goal of a minimum 30% increase in revenues for this fiscal year. This estimation was also mentioned by the open letter to shareholders as above."

Mr. Yin continued, "Our Gansu subsidiary construction projects, focusing on oilfield sewage treatment and oily sludge disposal treatment project with an annual processing capacity of 60,000 tons of oily waste ("Project"), is also proceeding well (Refer to the following link for more details: http://recon.mediaroom.com/2017-11-07-Recon-Announces-Investment-to-Expand-Services-for-Oily-Sludge-Market-in-Yumen-Oilfield?pagetemplate=widgetpopup). Total investment of this project is expected to about RMB100 million. Approximately RMB5.4 million, which mainly consisted of the purchase of land use right and prepayment for equipments and construction supplies, has been devoted into the first stage of construction. We expect this project to be operational by June 2018 and annual revenue to be generated by the Project is estimated to be over RMB 50 million."

Cost of Revenues:

Recon's cost of revenues increased from approximately ¥6.7 million for the three months ended September 30, 2016 to approximately ¥10.1 million ($1.5 million) for the same period in 2017, representing an increase of approximately ¥3.4 million ($0.5 million), or 50.2%. This increase was mainly due to increased costs deriving from additional revenue generated from automation products and equipment than the same period of last year.

Gross Profit:

Recon's gross profit increased to approximately ¥2.1 million ($0.3 million) for the three months ended September 30, 2017 from approximately ¥1.1 million for the same period in 2016. Recon's gross profit as a percentage of revenue increased to 17.2% for the three months ended September 30, 2017 from 14.0% for the same period in 2016. This was mainly due to higher margin automation projects and equipment business during this period, which led to the increase in revenues more than the increase in Recon's cost of revenues.

Selling and Distribution Expenses:

Selling and distribution expenses consist primarily of salaries and related expenditures of Recon's sales and marketing organization, sales commissions, costs of Recon's marketing programs including traveling charges, advertising and trade shows, and rental expense, as well as shipping charges. Selling expenses increased by approximately ¥36,100 (approximately $5,400) for the three months ended September 30, 2017 compared to the same period in 2016. This increase was primarily due to an increase in meal and entertainment expenses, partly offset by a decreased traveling expense. Selling expenses were 8.9% of total revenues for the three months ended September 30, 2017 and 13.5% of total revenues in the same period of 2016.

General and Administrative Expenses:

General and administrative expenses consist primarily of costs in human resources, facilities costs, depreciation expenses, professional advisor fees, audit fees, stock based compensation expense and other miscellaneous expenses incurred in connection with general operations. General and administrative expenses increased by 43.3% or ¥2.1 million (approximately $0.3 million), from approximately ¥4.9 million in the three months ended September 30, 2016 to approximately ¥7.0 million (approximately $1.1 million) in the same period of 2017. The increase in general and administrative expenses was mainly due to an increase in and performance-based compensation issued to management with an amount of ¥1.2 million (approximately $0.2 million) and investor relationship ("IR") expenses. General and administrative expenses accounted 57.7% of total revenues in the three months ended September 30, 2017 and 62.8% of total revenues in the same period of 2016.

Provision for doubtful accounts:

Provision for doubtful accounts is the estimated amount of bad debt that will arise as a result of uncollectibility from accounts receivables, other receivables and purchase advances. We recorded a provision for doubtful accounts of ¥8,000 for three months ended September 30, 2016 and ¥0.3 million (approximately $44,715) for the same period in 2017. Management will make efforts to collect long outstanding receivables.

Research and development ("R&D") expenses:

Research and development expenses consist primarily of salaries and related expenditures for Recon's research and development projects. Research and development expenses decreased slightly from ¥619,000 for the three months ended September 30, 2016 to ¥555,000 (approximately $0.1 million) for the same period of 2017.

About Recon Technology, Ltd. (NASDAQ:RCON)
Recon Technology, Ltd. is China's first listed non-state owned oil and gas field service company on NASDAQ. Recon supplies China's largest oil exploration companies, Sinopec (NYSE: SNP) and CNPC, with advanced automated technologies, efficient gathering and transportation equipment and reservoir stimulation measure for increasing petroleum extraction levels, reducing impurities and lowering production costs. Through the years, RCON has taken leading positions on several segmented markets of the oil and gas filed service industry. RCON also has developed stable long-term cooperation relationship with its major clients, and its products and service are also well accepted by clients. For additional information please visit us at www.recon.cn.

Currency Conversion:

The translation of RMB amounts into U.S. dollars are included solely for the convenience of readers and have been made at the rate of RMB 6.65 to US$ 1.00, the noon buying rate as of September 30, 2017 as set forth in the H.10 statistical release of the Federal Reserve Board. Prior period numbers have been recast into the new reporting currency.

Safe Harbor
This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

Disclaimer
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